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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12663
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Taxpayer died on 5/14/2012. Residence was sold 11/5/2012. How

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Taxpayer died on 5/14/2012. Residence was sold 11/5/2012. How is the sale reported on 1041 taking into account the section 121 exclusion??

NPVAdvisor :

Common practice is o assume that there's no gain because residence was sold within 60 months of sate of death (Sales price IS basis)

NPVAdvisor :

You should have received a 1099 B from the closing on the house. If that 1099 B listed the Estate federal ID number, than you have to report the transaction on the Form 1041. If however, the deceased's social security number is XXXXX that 1099 B, then you'll have to file another 1040.

NPVAdvisor :

In terms of reporting, the 1041 has a schedule D

NPVAdvisor :

Estate DOES get the stepped up basis, just to say that specifically

Customer:

Is there "no gain" because the basis is stepped up to the "sales price" or because there is an exclusion of the gain under section 121? How is this reported on the form 1041?

NPVAdvisor :

Good question .. here it's stepped up basis is you're reporting it on the 1041

NPVAdvisor :

it's excluded if the 1099 reports it nder the decedent's SS#

NPVAdvisor :

sorry for the typo's again if it's reported under the taxID of the estate, you'll have to show that the estate gets that stepped up basis

NPVAdvisor :

If the 1099 is reported on a social security number, then it's a 121 issue

NPVAdvisor :

Were there other reasons to do the 1041?

Customer:

Ok, so if the 1099 reports under an estate EIN then the basis is reported as an amount equal to the sales price and no gain or loss results, but if the decedent"s ssn is used then we use the section 121 exclusion. If this is the case , how is the exclusion reported...there is no form 2119 (I think that is the form) for form 1041?

NPVAdvisor :

It's excluded from income... there is NO reporting

NPVAdvisor :

no income to report

Customer:

how will irs reconcile the 1099 with the return if no reporting?

NPVAdvisor :

IRS knows 1099 B's (to individuals) sometimes result in no reportable income ... that's why I asked about any other need to do the return

NPVAdvisor :

On a different series tax ID (as in trusts, estates) they'll be lookingfor an explanation of why it's not taxable every time

Customer:

Sorry I did not see that question...actually that is the only need to file a return...at least that is what I thought. Are you saying that if that is the only transaction then there is no need to file?

NPVAdvisor :

yes

NPVAdvisor :

In SCANNN-NN-NNNN the Service ruled that a taxpayer isn't required to file an income tax return if the gain from sale of property is less than gross income threshold for filing income tax return regardless of amount of proceeds that are reported on Form 1099-B, provided that gross income of taxpayer doesn't otherwise exceed filing requirements. This ruling was based on Reg. § 1.161-6 which defines gross income in terms of the "net gain from the sale".

NPVAdvisor :

so here the gross income is less than $600

NPVAdvisor :

But there's one more point

NPVAdvisor :

If there are losses to report (like sales commissions) you WOULD want to file the return

NPVAdvisor :

If you do this with turbotax, for example, as long as you mark it FINAL, the losses will flow through to the bene's

Customer:

No losses...house was purchased about 25 years ago for around $120k and sold for $185K. Some improvements, but not enough to cause a loss.

NPVAdvisor :

then you don't need to file .. hang on a minute and I'll get you a citation

NPVAdvisor :
(3) Gains derived from dealings in property;


26 U.S.C.A. § 61 (West)

NPVAdvisor :

And here:

NPVAdvisor :
Assuming that the taxpayer's income does not otherwise exceed the § 6012(a) filing requirements, a taxpayer is not required to file an income tax return if the gross income for the year is a gain from the sale of property which is less than the gross income threshold for filing an income tax return regardless of the amount of proceeds reported on Form 1099-B.

IRS SCANNN-NN-NNNN/div>
Customer:

OK this works for me...thanks, XXXXX XXXXX

Lane and other Tax Specialists are ready to help you

Thanks James!

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Thanks again,
Lane